A foreclosure has a long-term negative effect on your credit rating, but does not need to necessarily stop you from financing a car loan. There are financial strategies you can employ that could help you get an affordable auto loan after foreclosure.
Time
The length of time that has passed since your foreclosure has a direct impact on your ability to get a car loan. In some states, you may not even be legally allowed to apply for a new loan with a foreclosure on your record that is less than six months old. After six months have passed, your financial liberties should be somewhat restored, and the loan application is less complex. In some cases, you may need to wait even longer than the six months before being able to attain a new car loan.
Down Payment
A larger down payment is almost always required if you are trying to get a car loan after a foreclosure. An increased down payment lowers the amount of the purchase price still left that needs to be financed. It also displays to the lender that you are able to save up that amount of money, which indicates some level of financial responsibility.
Higher Interest
A foreclosure on your credit history immediately makes you a high-risk loan candidate. High-risk car loans always come with a higher interest rate than someone with a better credit rating would receive. The purpose of the higher interest rate is to protect the lender and justify the risk they have taken by extending you financing. Be prepared for the high initial interest rate and keep in mind that you may be able to refinance the loan at a later date after you have done some repairs to your credit report.
Shorter Term
High-risk car loans usually have a shorter term than those granted to applicants with better credit. After a foreclosure, you should be prepared to repay the loan faster than lower risk financing packages.
In the lender’s perspective, a high-risk loan extended to someone with a foreclosure in their history becomes more likely to default or go to collections as time goes on. Even if you have stabilized your financial situation after the foreclosure, the risk is still very real in the eyes of banks and other lenders.
Foreclosures hurt your credit rating and can get in the way of your ability to get a new car loan. Allow time to pass and get ready to spend a bit more on interest and a down payment if you want to get a car loan after a foreclosure.
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